Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance
committees of the Legislature. LFC does not assume responsibility for the accuracy of these reports if they
are used for other purposes.
F I S C A L I M P A C T R E P O R T
SPONSOR Dow
/Garcia, M.
LAST UPDATED
ORIGINAL DATE 2/10/2025
SHORT TITLE Public Contract Reimbursement & Wages
BILL
NUMBER House Bill 305
ANALYST Garcia
ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT*
(dollars in thousands)
Agency/Program
FY25 FY26 FY27
3 Year
Total Cost
Recurring or
Nonrecurring
Fund
Affected
State agencies
See fiscal
impact**
See fiscal
impact**
See fiscal
impact**
See fiscal
impact**
Recurring General Fund
Total
See fiscal
impact**
See fiscal
impact**
See fiscal
impact**
See fiscal
impact**
Recurring General Fund
Parentheses ( ) indicate expenditure decreases.
*Amounts reflect most recent analysis of this legislation.
**Fiscal impact is contingent on the enactment of legislation increasing New Mexico’s minimum wage, but this
increase is not specified in the bill described below.
Relates to House Bill 246 and House Bill 11 and conflicts with House Bill 119.
Sources of Information
LFC Files
Agency Analysis Received From Children, Youth and Families Department (CYFD) General Services Department (GSD) Department of Health (DOH) Workforce Solutions Department (WSD) Early Childhood Care and Education Department (ECECD)
Agency Analysis was Solicited but Not Received From
Health Care Authority (HCA)
Department of Transportation (DOT)
Public Education Department (PED)
Department of Public Safety (DPS)
SUMMARY
Synopsis of House Bill 305
House Bill 305 (HB305) would add a new section to the Minimum Wage Act to require the state
to hold contractors and subcontractors harmless, increasing reimbursement, to fund any increase
in wages necessitated by a state minimum wage or cost increase resulting from a change to
statutory benefits. The bill notes that individuals pursuant to a contract or subcontract who are
paid a minimum wage will receive a wage increase concurrent with the state minimum wage
increase. House Bill 305 – Page 2
The effective date of this bill is July 1, 2025.
FISCAL IMPLICATIONS
House Bill 305 could significantly increase state contracting costs by requiring the state to
increase reimbursement to contractors and subcontractors in the event the state increases the
minimum wage or requires any potential compensation or benefit to hold contractor and
subcontractor wages harmless.
The Workforce Solutions Department (WSD) notes, given the placement of the provision in the
Minimum Wage Act, it is unclear who is responsible for funding the potential wage or benefit
increases required in the bill. This analysis assumes the intent is to increase state government
contracts to fund any future minimum wage increases or benefits required in statute. WSD notes
the agency’s budget could likely be impacted by unfunded contract price increases.
The bill could have a significant fiscal impact on the Early Childhood Care and Education
Department (ECECD), which contracts with early childhood care and education providers to
provide services including childcare, home visiting, early intervention, and other programs.
However, it is difficult to assess the specific fiscal impact of this bill because it would require
reimbursement increases for any potential future increase to wage or benefit analysis. According
to Workforce Solutions Data, the state employs 2,180 childcare workers who make an average
wage of $14.54 per hour. Given the state’s expansion of childcare assistance eligibility and the
extent to which childcare providers rely upon state revenue, a $1 increase to the minimum wage
could cost the state at least $3 million annually to increase contract costs to early childhood care
and education providers.
The bill could also likely have a significant impact on the Health Care Authority (HCA) and state
Medicaid program, which would likely need to seek increased reimbursement rates for Medicaid
providers due to any future statutory adjustments to the minimum wage or other compensation
and benefits. The Medicaid program is currently supported by $2 billion in general fund
appropriations and requirements to increase reimbursements would have a substantial, but
currently incalculable, impact on the general fund. As an example, a compensation increase that
would result in a 1 percent increase to Medicaid costs would increase recurring annual costs to
the General Fund by $2 million.
The General Services Department (GSD) noted the potential fiscal impact, particularly in the
Facilities Management Division, may be significant but cannot be projected. GSD noted the bill
could have an impact on project completion.
The Department of Health (DOH) reports the agency is managing approximately $50 million in
contractual services, which employs thousands of health care providers and provides other
services. This bill could have a significant but indeterminate fiscal impact on the agency.
The Children, Youth, and Families Department (CYFD) did not note a specific fiscal impact.
However, the agency could experience fiscal impacts on contractual services, as the agency
relies upon contractors to provide a variety of services, including behavioral health services for
children and domestic violence support providers.
House Bill 305 – Page 3
While other agencies did not provide specific analysis, this bill could likely have significant
fiscal implications for contractual service expenditures across state government.
Because it is unclear how future laws might impact employee minimum wage and benefits, it is
not possible to calculate the potential fiscal impact of House Bill 305, but the potential fiscal
impact could be significant.
SIGNIFICANT ISSUES
WSD reported:
“HB305 effectively shifts the financial burden of state-mandated minimum wage
increases and other legally required cost increases from contractors and subcontractors
with state service contracts to taxpayers, creating an uneven playing field. While private
businesses must absorb wage increases and statutory costs on their own, business with
government contractors would be reimbursed, giving them a financial advantage over
businesses without government contracts…contractors bidding on state service contracts
should already be factoring in expected minimum wage increases, particularly given that
bills contemplating minimum wage increases tied such increases to the consumer price
index. The bill would also create procurement unfairness. In an RFP process, a bidder
who proposes higher costs because of higher wages may be penalized, even though a
bidder who proposes lower labor costs would ultimately have any labor cost increases
absorbed by the state.”
GSD notes:
“as written the proposed provision would be in conflict with NMAC Procurement Code
Regulations (1.4.11[B]), which states, ‘no contract governed by this rule shall contain any
provision whereby a state agency agrees to indemnify a contractor or provide a contractor
with a limitation or liability or provide a contractor with insurance for non-tort risks.’
Based on a recent opinion of the New Mexico Attorney General, this duty to reimburse or
hold harmless may be in violation of the debt provisions of the New Mexico Constitution,
Article IX, Section 8.”
DOH reported an employer cannot be ordered to pay additional wages through state contracts;
statute confers the authority to determine prevailing wages but does not grant the power to order
an employer to pay specific wages.
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
This bill relates to House Bill 246, which would increase the state’s minimum wage to $17 per
hour and require that future minimum wage increases be tied to the Consumer Price Index.
This bill relates to House Bill 119, which would similarly require funding increases for state
contracts with statutorily required compensation and benefit increases.
The bill relates to House Bill 11, which would implement a paid family medical leave program
in the state, a statutorily required benefit.
House Bill 305 – Page 4
TECHNICAL ISSUES
Agency analysis noted the bill does not define “hold harmless,” however the law would likely be
interpreted to mean state agencies would have an obligation to reimburse or pay contractors and
subcontractors for either minimum wage increases or statutory benefit requirements.
OTHER SUBSTANT IVE ISSUES
The bill would apply to future legislation and require the legislature to make appropriations to
contractual services to offset any future minimum wage or benefit increases. The bill could
commit future legislatures to appropriation increases as well as increase the estimated fiscal
impact of potential future bills.
ALTERNATIVES
The Legislature could consider any minimum wage or benefit impacts to businesses when
developing state agency contractual services budget appropriations, as the Legislature has done
historically.
RMG/hj/SR